Vistaprint Financials Suffer From Strategy Shift
VENLO, THE NETHERLANDS—Vistaprint N.V., an online provider of professional marketing products and services to micro businesses and the home, announced financial results for the three month period ended March 31, the third quarter of its 2014 fiscal year.
"This is the first quarter in the past 14 years in which our revenue declined year over year," said Robert Keane, president and CEO. "While we are not content with this performance, our underlying value creation was much better than our headline financial numbers. Based upon significant customer research that we have conducted over the past three years we are shifting our value proposition away from the deep discounts and free-offer direct marketing that characterized the Vistaprint of the past toward being simply the best way for business owners to market their business. We are making this shift in order to expand into the large market opportunity that lies beyond our traditional base of highly price sensitive customers."
Keane continued, "This shift has been gaining momentum for more than two years and has created significant near-term revenue headwinds, but we persist in implementation because we believe in the long-term value of the strategy. The most impactful headwinds to date occurred in the past quarter. They were the result of changes to our pricing and marketing practices that we recently rolled out in our largest markets—the United States, Germany and United Kingdom. Since 2012 we have successfully tested similar changes in Canada but, as we described last August at our investor day, these types of changes typically cause an immediate revenue impact, the magnitude of which is difficult to project. In this past quarter, the headwinds were greater in the United States, Germany and United Kingdom, than we had anticipated.
Revenue for the third quarter of fiscal year 2014 was $286.2 million, a 1 percent decrease compared to revenue of $287.7 million reported in the same quarter a year ago. Excluding the estimated impact from currency exchange rate fluctuations, total revenue also decreased 1 percent year-over-year in the third quarter.
Gross margin (revenue minus the cost of revenue as a percent of total revenue) in the third quarter was 64.7 percent, down from 65.5 percent in the same quarter a year ago. Operating income in the third quarter was $5.2 million, or 1.8 percent of revenue, and reflected a 46 percent decrease compared to operating income of $9.7 million, or 3.4 percent of revenue, in the same quarter a year ago.
GAAP net income attributable to Vistaprint for the third quarter was $1.4 million, or 0.5 percent of revenue, representing a 77 percent decrease compared to $5.9 million, or 2.0 percent of revenue in the same quarter a year ago. During the quarter, Vistaprint incurred transaction costs of $3.4 million related to two recently-announced acquisitions. GAAP net income per diluted share for the third quarter was $0.04, versus $0.17 in the same quarter a year ago.
"We also continue to move forward with many other improvements to our value proposition beyond our pricing and marketing practices," Keane added. "Examples include better customer service availability, improved product substrate quality, more reliable shipping methods, assistance for graphic design creation, new options for premium finishes, and more SKU choices."
As of March 31, 2014, the company had $46.5 million in cash and cash equivalents and $202.0 million of debt. After considering debt covenant limitations, as of March 31, 2014, the company had $301.4 million available for borrowing under its credit facility. Subsequent to the end of the quarter and after incorporating its acquisitions of People & Print Group and Pixartprinting, Vistaprint had roughly $150 million available for borrowing under the facility.
Starting in the first quarter of fiscal 2014, all operating metrics reflect the consolidated business including the company's Albumprinter and Webs acquisitions, and post-acquisition prior-period comparisons have been adjusted to reflect the same consolidated view.
Subsequent to the close of the quarter, Vistaprint reached an understanding with Namex Limited that Vistaprint would dispose of its minority equity interest in Namex Limited, as recent discussions with Namex management identified very different visions for the execution of the long-term strategic direction of the entity. Since its initial investment in fiscal 2012, total capital investment in Namex has been approximately $17.7 million. Vistaprint expects to sell its 45 percent share investment to the majority shareholder and recognize an income statement loss of up to $14 million in the fourth quarter of 2014 as the carrying value of the investment exceeds the expected proceeds.